When your employer plays Santa, the CRA is watching

nyornamentsSpectacular lighted trees adorn our public spaces, the strains of seasonal music can be heard everywhere and stores are filled with a frenzy of shoppers seeking the perfect gift for those they love.
Our calendars, already jam-packed with end-of-year tasks, are now into over-drive trying to make room for the holiday parties that fall into two categories: those we want to attend, and those we must attend.

Unless you are one of the growing number of people toiling in a home office, if you work you likely have already been given the date for the mandatory festive get-together.

In the midst of the hors d’oeuvres we don’t serve in any other season, the glitter and the tinsel and the sugar-filled desserts are often gifts from our employers and for the lucky ones, a generous bonus from an appreciative company.

But the holly and the ivy don’t hide the reality that Canada Revenue Agency is watching the corporate gifts you are given and is determining whether or not they are taxable.

Even the gift of a party could, under certain circumstances, be a taxable benefit. A little party is just a thank-you, but too big a party becomes just another word for compensation.

Here’s what you can accept graciously from your boss without worrying about the tax man: A nice meal, a few drinks, a bit of holiday entertainment, a taxi to and from your home or if that is too far away, a night at a hotel. When the cost of each participant attending the party is averaged out, it should come to no more than about $100 a person.

However, if your employer says it was a banner year and you were to thank for that, and to express their gratitude they are taking you and your family to a Christmas party in the Caribbean that will last for one full all-expense paid week, then that becomes something you have to pay tax on. Your company has no choice but to add it to your T4 slip and your Canada Pension even has to be paid on it.

There is a price to pay for extravagant thanks, it seems. Maybe the pub meal and two beer coupon topped with a $30 turkey certificate is just enough after all.

While the CRA watches the holiday bonus scene closely, they are a little more lax when it comes to you being honored for long service. If your company gave you a weekend get-away with meals and a spa service, for example, you wouldn’t have to claim it unless it was valued at more than $500.

But if for both Christmas or long-service awards they actually give you cash, that will be taxable income.

If it is something Revenue Canada describes as “near cash,” it is also taxable income.

Near cash, in lay person’s terms, is a gift certificate or Air Miles or a gift from your company’s suppliers. The way they determine what is taxable has to do with how easily you can convert the gift to cash.

When we work with clients and they suddenly discover that the lovely bonus trip they earned for achieving their sales goal was taxable income, it takes a bit of the glow off their winning. It’s not your employer’s fault; they have to declare the gift was given by law, just as surely as you must pay tax on it.

For the average employee, however, a holiday party is no more than a few drinks and snack foods with colleagues, a time to laugh and get to know the people you work with in a more relaxed setting. The benefits are obvious and non-taxable. But if the gifts become too lavish, be aware of the old adage that we rarely do get something for nothing.

Certified professional bookkeeper and certified tax specialist Elena Ivanova is managing director of Piligrim Accounting Inc., a national accounting and tax preparation service based in Richmond Hill, Ont. You can reach her at elena@piligrim-accounting.com.

You might also like

Request a Consultation

If you have a challenge and need an experienced perspective, request a consultation to see if we are a good fit to work together.